Net investors remain calm

BambiFrancisco

NEW YORK (CBS.MW) -- After an early-morning pop, reminiscent of momentum trading's heyday, most Net shares followed Amazon lower Tuesday.

A mixed earnings report from Cisco Systems, released after the close, could pave the way for another volatile session Wednesday.

After the close, Cisco Systems posted third-quarter revenue and earnings that exceeded expectations. But Cisco CEO John Chambers also left investors scratching their heads with this statement: "We are now in a valley much deeper than any of us anticipated and we believe the basic issues are macroeconomic and capital spending related." Shares of Cisco
CSCO, +0.37%
added $1.11 to $20.36 ahead of the report, partly on a Morgan Stanley upgrade.

Whether Cisco shares gain traction will depend on what Chambers tells analysts on the conference call following the report. Some predict Chambers may not be upbeat on the call. See Net Sense.

As for the overall Internet sector, the Goldman Sachs Internet Index meandered in and out of negative territory much of the day. By the close, the Net barometer rose 1.4 percent.

Adding some pressure to the market was the latest reading on worker productivity.

"The productivity number was a negative surprise and indicated that we'll continue to see pressure on earnings," said Michael Holland of eponymous Holland & Co., referring to the latest non-farm productivity report that showed productivity falling to the lowest level in five years.

Overall, investors appeared less willing to overreact in any direction, which was a refreshing sign to market strategists.

"In the last month, particularly the last week, we've seen irrational moves driven by momentum rather than fundamentals," said Greg Jones, director of research at Briefing.com. "But I don't expect the style of investing we've seen in the past two years to come back. We just may see hints of it with each market recovery.

"The investor community as a whole hasn't forgotten the pain in the past year. It will take a generation or maybe longer before this mistake is repeated," Jones added.

Said Holland: "Smart money, which is individual money, is showing patience with the market. There is no reason to bid stock prices higher as multiples are already expanding as earnings implode."

Internet Capital Group
ICGE
an operator of e-business companies, will report first quarter results after the close on Wednesday. As of the last quarter, ICG had 72 partner companies. On average, ICG owns 36 percent of those companies. Shares of ICG slipped 10 cents to $3.13.

Power outages

Yahoo said one of its servers hosted by Exodus was hit by a power outage on Monday. A few services, including Yahoo Messenger, were down for approximately three hours, according to a Yahoo spokesperson.

According to Exodus officials, one of its data centers in Sunnyvale, Calif., was knocked out for about one hour due to an "interruption of commercial power supply from Pacific Gas & Electric, resulting from a PG&E underground vault explosion."

Each Exodus IDC is equipped with "uninterruptible power supply systems and back-up diesel generators to sustain operations," according to Exodus. In this instance, however, operations failed to roll over to the back-up systems and company engineers are looking into the matter.

Some analysts are concerned the power outages in California could pose a large problem for hosting companies. Others disagree.

"The power crisis should not have a materially large impact on companies such as Exodus because electricity isn't that large a cost element to run a data center," said Gregory Gieber, an analyst at A.G. Edwards. Moreover, "Exodus is exempt from the rolling blackouts, the regulated temporary shutdown of certain electricity grids to regulate demand at peak periods," Gieber added.

The power crisis will have an adverse impact on Exodus to the extent that it creates economic problems for its clients, said Gieber, noting that Exodus' internal revenue growth has slowed.

Upgrade season, not

After Cisco's early-morning pop on the heels of the Morgan Stanley upgrade, it appeared that the market may be entering upgrade season.

"There are no signs of it," said Joe Cooper, research analyst at First Call. "In aggregate, for everyone upgrading stocks, there is someone downgrading."

Meanwhile, over at Thomas Weisel Partners, "strong buys" are being thrown about.

Check Point Software
CHKP, +0.74%
rose $3.81, or 6 percent, to $67.71. Thomas Weisel Partners analyst Tim Klasell picked up coverage on the Internet security firm with a "strong buy" rating. The previous analyst had a "buy" rating on shares. Klasell also established a $135 price target, based on a price-to-earnings-to-growth multiple of 2 times his '02 earnings estimate of $1.70, and an estimated 40 percent long-term growth rate. Klasell covers platform and infrastructure software.

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